Dubai has attracted a large number of expats because of high standard of living and its popularity as a tax-free haven, with no income taxes imposed on individuals or businesses. Dubai does not tax income and a majority of products and services are tax-free. Many people believe that Dubai has no direct or indirect taxes. It is actually myth.
Government has imposed various taxes to diversify its revenue stream. Taxes are an integral part of the financial system in Dubai and throughout the UAE. If Dubai provides the best incentives to Emirati citizens, these benefits must be paid by the people through various forms of revenue. For those who wanted to know the kind of taxes they need to pay while doing business in or visiting Dubai, here is an overview of taxation in Dubai and the UAE.
Classification of Tax in Dubai
Taxation systems are divided into two categories – direct and indirect taxes. Direct taxes are levied on individuals or businesses directly, while indirect taxes are imposed on goods and services.
Direct Taxes: Individual income tax, corporate tax for companies, capital gains tax, and property transfer fees and others.
Indirect Taxes: Value-added tax (VAT), excise duty, customs duties, tourism fees, real estate registration fees, and others.
Taxes to Be Paid in Dubai
The Dubai taxation system is hugely popular because the government here imposes only a few taxes. The taxes in Dubai are:
Corporate income tax which is levied at a rate of 9% for profits of more than AED 375,000 starting with January, 2023
Value added tax introduced in the UAE and the entire GCC region in 2018.
Tourist tax which is levied at a rate of 10%
Rental tax levied on the rental of real estate properties located in the Emirate.
There is no personal income tax in Dubai. Also, there is no withholding or capital gains tax levied.
Income Tax Laws in UAE
Dubai is a tax haven where employees and workers are not subject to income taxes. The income from salary, benefits, investment income, dividends, residential property income, and capital gains will not be subject to income tax here. Also the new tax rules have provided additional tax relief and exemptions to startups and small businesses. Because of that, you won't have to worry about the Dubai income tax rate because you won't be charged any during your time working in the region. But if you are taxable in your home nation and make huge earnings in Dubai, you may be subject to taxation. These tax breaks do apply to freelancers also. So they have to acquire freelancer license and begin conducting business operations.
VAT was included in the Dubai’s taxation system in the year 2018. The VAT rate is 5% and is one of the lowest in the world. However, certain goods are exempt from VAT. Some personal protective equipment used during the COVID-19 pandemic, like medical and textile masks, single-use gloves, chemical disinfectants, and antiseptics, were exempted by the UAE in the year 2020. Other items and services subject to a VAT rate include:
Exports of goods and services outside the GCC
Investment-grade precious metals
Newly constructed residential properties
Few education and healthcare services
Any VAT-registered enterprises can request refunds from the appropriate tax authorities by submitting a request along with the needed paperwork. Tourist purchases are subject to VAT. But they can ask for a VAT refund while in the Emirates. Companies operating in free-trade zones, the Dubai mainland, and offshore areas are all subject to VAT. If you engage in trading products and services outside the GCC or provide particular educational and healthcare services in the UAE, you will not be subject to VAT.
The excise tax was implemented in the UAE in the year 2017. It is an indirect tax applied on specified commodities that are detrimental to human health or the environment. This kind of tax is designed to minimize the consumption of these goods and also at the same time produce revenue for the government to spend on public services. The goods are called as "Excise goods".
The following definitions will determine whether or not a product is excise good:
Any aerated beverage except unflavored aerated water counts as a carbonated drink.
Any concentrations, powders, gels, or extracts destined for use in an aerated beverage are also considered as carbonated drinks.
Any beverage that is sold or promoted as an energy drink and contains chemicals that give mental and physical stimulation is considered an energy drink.
Some of the examples are Caffeine, Taurine and Ginseng. All items specified in Schedule 24 of the GCC Common Customs Tariff will be taxed at 100% on tobacco and tobacco products.
Corporate Taxes in Dubai
The profits made by a company throughout the financial year are subject to corporate tax. Apart from the UAE tax framework, Dubai has its own set of corporate tax regulations that apply to companies. These taxes are applicable to gas and petroleum enterprises as well as foreign bank branches that operate in Dubai. The income of gas and oil companies will be taxed at a rate of 55%. The tax rate for global bank branches operating in Dubai is estimated to be 20%. However, dividends, interest, and royalty payments sent overseas are not subject to withholding taxes.
Taxes in Dubai Free Zone
Dubai Free Zone provides a variety of tax incentives to international businesses looking for business spaces with a low-tax environment. There are Free Zone authorities that provide firm income tax exemptions for up to 50 years. The profits can also be freely transferred to other countries and there are no withholding taxes or capital gains taxes in the region.
Other Taxes in Dubai
The following are the indirect taxes levied by the Dubai government:
Hotels, entertainment venues, and the rental of commercial spaces (offices and warehouses) in Dubai are subject to a 10% municipal tax.
A 5% municipal tax for the rental of residential property
The Dubai Electricity and Water Authority levies certain charges on utility bills.
A 50% tax for Imports of alcoholic beverages
A 30% levy on the purchase of alcoholic beverages
If you have a large company, you should definitely seek independent financial guidance on matters related to tax laws and obligations. Investors with an aim of opening a company in Dubai can depend on professional consultants such as Bizvise for setup assistance. We can also assist you in creating an understanding of taxation structure and laws in Dubai and UAE.